BANKING AND CURHENCY TN NEW ZEALAND BE PORT.

B.-3.
1931.
NEW
ZEALAND.
BANKING AND CURHENCY TN NEW ZEALAND
(REPORT ON, BY
SIR
OTTO NIEMEYER, G.B.E., K.C.B., OF THE BANK OF ENGLAND).
Laid on the Table .of the House of Representatives by leave of the Hottse.
BE PORT.
SIR,--
)
19th February, 1931.
1. In July last you were good enough to ask me to advise on the banking and
currency system of New Zealand, having regard to the position in which that
system has emerged from the war, and to the fact that the existing Proclamation
under which inconvertible notes are legal tender in New Zealarid expires on the
loth January, 1932. Since then I have been so fortunate as to be able to visit New
Zealand and discuss these issues 'with the New Zealand Treasury and with the
representatives of the six banks operating in New Zealand. I have the honour now
to present the following report :2. At the present time the issue of legal-tender clUTency, apart from subsidiary
coin, is entrusted to the six commercial banks. Although before the war gold
coin was in circulation and notes were redeemable in gold, that coin has now been
withdrawn and the inconvertible notes of the individual banks constitute the sole
legal-tender currency. Under wartime regulations still in force, the banks are no
longer obliged to keep any gold coin as cover for their notes issued, and there is a
legal prohibition on the export of gold coin except with the approval of the Finance
Minister. In fact, however, there is held in New Zealand by the banks gold to an
amount roughly equivalent to the total notes issued.
3. The factor actually determining the volume of the currency issued in New
Zealand is not the phYSIcal amount of gold held by the banks, "but the general
credit position as represented by the balances held by those banks in sterling. It
is no accident that the volume of credit in New Zealand is not governed by the limits
of currency imposed by note-issue legislation; notes or other monetary circulation
are merely the consequence, and not the cause, of a given volume of credit. On a
given credit structure public convenience demands a certain amount of notes, and
it is credit which governs cUrTency, and not vice versa. This was probably true at
all times, but it is increasingly true to-day, when means of payment are even less
confined to notes and coin than they were fifty or sixty years ago. Equally it is
clear that the credit posit,ion in New Zealand must to a great extent be governed by
the balances. held in that market with which the major commercial and financial
transactions are conducted-that is to say, London.
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4. The first question which appears to me to arise is whether New Zealand
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should revert to the pre-war currency system with gold coin in circulation and with
a liability to pa,y n~tes inte~nally in gold. On this poin~ I should s~,rongly re.commen?
permanent legislatIOn makmg the New Zealand note mternally mconvertlble, as It
is in fact now, and as a consequential measure removing the prohibition on the
export of gold coin, which will no longer be necessary. It is generally recognized
hy monetary authorities that the main purpose of a gold reserve is to meet possible
calls for foreign exchange. The gold standard consists essentially in an obligation
on countries adhering to that standard to provide gold or its equivalent at certain
fixed rates for payment to one another. It is no essential part of the gold standard
to provide gold coin for internal use, and the absence of such liability is no departure
from the gold standard as such. So long as New Zeala,n d recognizes a liability to
pay gold or its equivalent at definite rates abroad, she will be just as much on the
gold standard if there is not a single gold coin in circulation in New Zealand, and
no liability to pay gold coin for notes internally.
Further, under ~odern conditio:p.s the "llse of gold coin as an internal circulating
medi~lin has in fact steadily decreased. In those co-qntries where it is still a legal
obligation to pay notes internally in gold, in practice very little gold coin is in
circulation. In many countries, as is well known, even the legal obligation has been
removed. In the United Kingdom, for instance, under the Act of 1925, the Banle
of England cannot be called upon to pa:y its notes in gold, except in gold bullion
bars containing 400 oz. of fine gold, worth about £1,700 each. In effect, this provision amounts to an obligation to provide gold only for export in settlement of
foreign exchange payments.
In past days, when notes were a much larger proportion of the total purchasing
.media, when international financial connectibns were much more limited, and when
notes represented usually the private liabIlities of numerous competing banks, the
position wa,s different. A bank had no means of meeting its obligations to noteholders except by payment in coin, and an individual bank could not afford,
vis-a-vis its competitors, the risk of a run which it could not face. But in countries
with an adequate central banking system, in which the Central Bank is responsible
for the maintenance of the currency and must always b~e prepared to provide against
proper securities legal tender for internal obligations, the internal need for payment
in .coin has ceased to exist.
.
On a wider consideration, and having regard to the existing and prospective
supplies of gold available as a basis for monetary purposes, it i~ . of the utmost
impo~'tance to economize in the use of gold. The scattering of gold about a country
in the form of circulating gold coins (or in' the form of gold dormant held in private
hanks) removes that gold from effective influence on the monetary position.
A shortage of monetary gold, to which the putting of gold coin in circulation would
contribute, tends to accentuate a restriction of credit, and that in its turn to precipitate a fall in the money prices of commodities. Countries, such as Ne"l Zealand,
which are essentially primary producers, are heavily interested in any step tending
to check the continued decline of world prices, and they have therefore a strong
interest in doing all they can to avert a gold-shortage. It would probably be
impossible, in any case, for New Zealand to revert, to a gold coinage in intern8J
circulation; but even if it were possible, it would be in theory a retrograde step
and in practice inimical to the best interests of New Zealand.
An internal gold circulation is not merely an unnecessary luxury from the
point of view of New Zealand, but also would be contrary to modern views on
currency, and likely, pro tanto, to be a factor in bringing about a world goldshortage, from which New Zealand, among other countries, would suffer.
5. The question as to the medium into which New Zealand notes should
remain externally convertible is the easier to answer in view of what is nmy in fact
the practice of some years' standing. New Zealand is in practice already on a
sterling exchange standard: her ohligations abroad are for the greater part satisfied
by the offering of sterling balances in London, which are the equivalent of gold,
and the. vast preponderance of her trade and her indebt.edness is with the United
Kingdom. In ma.ny European countries on the gold standard, though not in
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England, the Central Bank can acquit itself of its liability in respect of the redemption of its notes by tendering, at its option, either gold or foreign gold exchange
(that is to say, payment in the legal-tender currency of a country effect.ively bound
to allow the export of gold), and in consequence is authorized to hold such foreign
exchange as part of its gold reserve. The degree to which such countries in fact
pay in foreign exchange as against gold varies, but a system by which they pay
solely in gold foreign exchange is a well-recognized and perfectly practicable method.
It has for years been the practice of the Indian Government, which maintains for
the purpose sterling reserves in London. It is the practice of Currency Boards in
many parts of the Empire. It is also the practice of the Irish Free State, whose
Note-issue Board hold reserves in London, mostly invested in short-term sterling
bills, and who undertake a liability to pay their notes in London in sterling or to
give notes in Dublin for sterling at fixed rates.
I recommend that New Zealand should formally adopt the sterling exchange
standard, thereby bringing the regulations governing the currency system into
accord with standing practice and providing a separate basis for New Zealand
exchange dependent only on her own balance of payments, and incidentally transforming into an earning asset the present holding of dormant gold.
6, It would, I think, be difficult to make it mandatory on private banks to
buy or sell sterling at rates not exceeding the limits of the import and export gold
points. For this reason, and, indeed, also from the point of view of general
currency practice, it would appear desirable to concentrate the New Zealand noteissue in the llands of one authority. A single and llliform note-issue is an essential
principle of central ba,nking, and, with few exceptions, has been adopted by all
niodern countries. It is not desirable that the privilege of issuing legal-tender
money should be in the hands of private trading banks, and, as banks who surrender
such a privilege are also relieved of the liability for their notes, they have no
reason to complain of the transfer of the note-issuing privilege to a central body,
especially in a case where, as in New Zealand, the level of special taxation on noteissues has reached a point at which (according to the banks' statement) the issue
is no longer profitable.
7. The status, constitution, and functions of the body which should manage
a unified note-issue obviously depend to a great extent on the size and complexity
of the unit involved and the purposes which · it is desired to achieve. I do not
think that either a Notes Board or a Currency and Exchange Board would offer
a permanently satisfactory solutiqn in New Zealand.
The functions of a Notes Board would be purely automatic. Such a Board
would have no other function than the internal management of the currency,
involving, after the initial replacement of the existing note-issues, no more than the
issue of notes against such assets as might be authorized by law. The defect of
such an organization is that not only could the Board have no influence on the
development of the credit situation, but it would have no effective means of
regulating the exchange in accordance with that situation.
A Currency and Exchange Board charged with the statutory duty not only
of managing the note-issue, but also of providing exchange, would have a slightly
larger scope. Such a Board would undertake to buy and sell exchange within the
gold points. If the exchange showed signs of weakening in London, the New
Zealand office of the Board would offer to sell exchange on London at a fixed price.
If New Zealand money showed signs of appreciating in terms of sterling, the office
of the Board in London would offer to sell exchange on New Zealand at appropriate
rates. This scheme has the merit of connecting the maintenance of the exchange
with the management of the note-issue. It has, however, the defect that the credit
conditions which might make for unstable exchanges could not directly be influenced
by the Exchange Board, which could only operate to the extent of the assets it
actually held.
The course which I should recommend would be the establishment (as in other
Dqminions) of a Reserve Bank of a size appropriate to New Zealand's conditions.
Such a bank would necessarily be charged with the duty of managing the noteil?sne, accepting the responsibility for the ultimate stability of the exchange, holding
reserve balances of the trading banks, and carrying the Govermllent account.
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8. The general advantages of such an institution, if based on sound principles,
are, I think, very considerable. It would, obviously, perform the functions that
might be discharged by either of the two alternative organizations mentioned above;
but it would, in addition, be able to exercise a gradually increasing influence over
the credit situation in New Zealand, and by timely action minimize the disturbances
in ejther direction which are liable to arise out of an unregulated or imperfectly
regulated market. A Reserve Bank would further provide machinery which is not
only useful but also indispensable for the gradual development. over a period of
years of a short-term money ..marketin New Zealand. Finally, such a bank would
provide an instrument for co-operation with the Central Banks of other countries-a
co-operation which is becoming of increasing importance and "\"hich at present finds
no suitable point of contact in New Zealand.
I am aware that certain objections may be urged against the establishment
of a Reserve Bank in New Zealand in the present stage of the country's development.
It may be argued that the money-market of the country i~ at present too slightly
developed either to make it necessary to have a Reserve Bank, or to render the
adequate functioning of such a bank possible if it were established. It may be
said that in New Zealand there is no bill-market, no short-loan market, and, generally
speaking, no money-market in the full sense of the term, and that in the absence
of these features the services that could be rendered by a Central Bank would be
greatly curtailed.
I have given mature consideration to these arguments, and, without wishing to
minimize their importance, I am definitely of opinion that they do not constitute
!nsuperable objections to the establishment of a Reserve Bank in New Zealand.
I have outlined above the principal advantages which would accrue from tlie establishment of such a bank, and I would repeat that if the .absence of such factors as a
short-term market and a bill-market [eaves a gap in the financial structure of the
country the process of closing such a gap can begin in no other way, or certainly in
no more effective way, than by the est,ablishment of a Reserve Bank. A moneymarket follows the creation of adequate central machinery, and cannot effectively
exist, or be expected to exist, until the machinery is available. Nor am I of opinion
that the volume of New Zealand's financial transactions, internal and external, and
the development of her banking system, aTe insufficient to warrant the establishment
of a Reserve Bank: it is perhaps enough to point out that not only South Africa
but many European countries of less frnancial importance have established and are
operating successfully a modern type of central bank.
9. But the recommendation to establish a Reserve Bank is subject. to two
fundamental conditions.
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-- In the first place, the bank must be entirely free from both the act.ual fact and
the' fear of political interference. If that cannot be secured, its existence will do
more harm than good, for, while a Central Bank must serve the community; it
cannot carry out its difficult technical functions and cannot hope to form a connecting-link with the other Central Banks of the world if it is subject to political
pressure or to influences other than economic. Experienc~ has shown that the
best method of safeguarding the independence of a Central Bank is to constitute
the Central Bank as a private corporation 'with a capital subscribed by the general
public and an independent Board of Directors elected by the shareholders. Such a
constitution does not mean that the bank is conducted for the private profit of a
few individuals, for it is perfectly competent to limit the maximum dividends, to
provide for the payment to the State of any excess profits, to limit the voting-rights
of the shareholders so as to prevent the undue prominence of any single group, to
place restrictions on the choice of directors, and, if desired, to provide for the confirmation of the appointment of the Governor and Deputy Governor by the GovernorGeneral.
In the second place, in order that the bank may effectively discharge its
functions in regulating the credit conditions of a country, it should hold both the
banking balances of the Government and t.he reserve balances 'of the trading banks.
Trading banks are bound to hold liquid reserves, and it is no hardship to them that
those reserves should be cOhcentrated in a Reserve Bank. In fact; it is usual that
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either by law or custom they should be required to keep a certain percentage of their
reserves :with the Reserve Bank. In the case of N~w ~.e~land I would suggest that
the reqmrement should be 7 per cent. of demand habilitIes and 3 per cent. of time
,
liabilities.
Provided these two conditions can be fulfilled, I should recorru:'uend the
establishment in New Zealand of a Reserve Bank on recognized lines, to which
should be given the exclusive right for a period of years of note-issue in New
Zealand, the custody of Government balances, and the custody of the minimum
reserves of the ti>ading banks.
It must, of course, be recognized that the sphere and function of a Reserve
Bank is entirely different from those of trading banks. A Reserve Bank must ilOt
be expected or called upon to act as a trading bank: and it should itself be careful
not to compete with trading banks. The statutes which are suitable for reserve
functions properly exclude much that would be perfectly legitimate trading
banking. The distinction is vital.
.
10. To avoid overloading the report with a m1;lltitude of matters which, though
of great importance, are of a technical nature, I have put my detailed suggestions
for carrying out the proposals indicated above in the form of draft statutes modelled
011 the lines of general central banking legislation, with such modifications as seem
indicated in the circumstances of New Zealand.
11. I would here only summarize my recommendations as follows :(1) That permanent legislation should be passed making the New Zealand
note inconvertible in New Zealand but convertible into sterling at
rates fixed within certain limits;
(2) That an independent Reserve Bank should be set up charged with
responsibility for the stability of New Zealand currency, invested
with the privilege of . note-issue, and charged with holding the
Government account and the banking reserves of New Zealand;
(3) That the note-issue should be unified and concentrated in the Reserve
Bank, the note-issuing powers of existing banks being abrogated;
(4) That the trading banks should be required to transfer to the Reserve
Bank the gold they now hold in New Zealand in exchange either for
Reserve Bank notes, with which they can payoff their own notes,
or fOT credit at the Reserve Bank;
(5) That the trading banks should be required to keep with the Reser~,e
Bank minimum reserves of 7 per cent. of their demand liabilities
in New Zealand and 3 per cent. of their time liabilities in New
Zealand;
.
(6) ,That thereafter the existing prohibition on the export of gold ' coin
from New Zealand should be withdrawn.
I am, Sir,
Your obedient servant,
O. E. NIEMEYER.
The Right Hon. G. W. Forbes.
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SUGGESTED POIN'fS FOR INCORPORA rl1ION IN NEW ZEALAND BANK LAW,
, 1. Foundation,-There shall be constituted, under the name of "The Reserve Bank of New
Zealand" (hereinafter referred to as the bank), a company limited by shares, which shall be governed
by the statutes contained in the annexed Schedule A.
2. Oapital.-The original capital of the bank shall be £500,000, in fully-paid shares of £5 each,
all of which shall be offered by the New Zealand Government for public subscription in New Zealand.
In the event of any of the capital not being subscribed by the public with~n three months of the date
of issue, the New Zealand Government shall take up such capital, but shall offer it for subscription
by the public at par so soon as, in the opinion of the Board of Directors of the bank, market
conditions permit.
3. Reserve.-The sum of £1,000,000 shall be paid by the Treasury t.o the bank and shall be
utilized in the first instance to take up any shares in the original capital of the bank for which the
public shall not have subscribed, the balance being paid into the General Reserve Fund of the bank.
Subsequently the amount, if any, utilized in t.he · purchase of shares shall be paid to the General
Reserve Fund as and when the shareR are sold in accordance with section 2 of this Act.
4. Issue oj Notes.-The bank shall have the sole right to issue notes in New Zealand for a period
of twenty-five years from the commencement of this Act: Provided that for a period of six months
from the commencement of this Act, 01' such longer period as may elapse before the bank is in a
position to issue its notes in substitution for the notes in circulation of other banks, the banks issuing
notes in New Zealand at the commencement of this Act may continue to issue notes under the provisions of the several laws then in force.
As soon as the bank has notified the Treaslll'y that it is in a position to issue notes, the otber
banks shall, OIl a date to be fixed by Proclamation in the Gazette (which shall not be more than one
month after the receipt of such notification) cease to issue or reissue notes, other than Reserve Bank
notes, and shall redeem any of their notes outstanding with Reserve Bank notes.
5. Tmnsje1' oj Gold Ooin and Btl,llion.-As from such date as the Reserve Bank may decide, 'all
banks transacting business in New Zealand shall pay over to the Reserve Bank in exchange for
Reserve Bank notes or for credit at the Reserve Bank all gold coin or bullion held by them in New
Zealand.
6. Minimum Oash Reserves to be maintained by theothe1' Banks against Deposits.-Every bank
transacting business in New Zealand shall be required, as from the establishment of the bank, to
maintain balances in the Reserve Bank equal to at least 7 per cent. of its demand liabilities in New
Zealand, other than notes, and 3 per cent.. of its time liabilities to the public in New Zealand, as shown
in the last preceding monthly return rendered under section 7 of this Act. When it appears from any
monthly ret,urn that any bank has failed to maintain such reserve balance, it shall be competent for
the Reserve Bank to call for such further retul'll or make such inspection of the books and accounts
of the bank in default as may be necessary to ascertain the amount of the deficiency and the period
during which it continued, and the bank so in default shall incur a penalty recoverable by action in
a Qompetent Court at the rate of 10 per cent. pel' annum on the amount of the deficiency for eaeh day
that it continued. No bank may at any time make new loans or pay dividends unless and until the
reserve balance required under this section is restored.
7. Monthly Retttrn.-A return made up to the date of the close of business at the end of every
month, and signed by the manager and the accountant of every bank which transacts business in New
Zealarid, or by other ' principal officers acting on their behalf, shall be sent to the Reserve Bank,
Wellington, by such bank within twenty-one days after such date, showing(a) The amount of the demand and time liabilities of the bank in New Zealand;
(b) The amount of the demand and time liabilities of the bank in foreign exchange;
(c) The reserve balances held in the Reserve Bank of New Zealand;
(d) Foreign assets of the bank ;
(e) The gold and subsidiary coin held in New Zealand;
(f) The total amount of its advances and discounts in New Zealand;
(g) The amount of Reserve Bank notes held;
(h) The amount, if any, of the bank's own notes issued in or payable in New Zealand and
in circulation;
and the bank shall cause a summary of such monthly return for each bank to be sent to the Treasury
for publication in the Gazette.
If any bank fails to comply in any respect with the requirements of this section it shall incur
a penalty, recoverable by action in a competent Court, of £10 for each day during which it is in
default.
8. P'rovisions oj this Act in relation to other Laws.-The provisions of this Act shall be in addition
to and not in substitution for any provisions of any other law relating to currency or banking, and
if the provisions of such other law are in conflict with or inconsiRtent with the provisions of this Act
the provisions of this Act shall prevail.
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9. Interpreta.tion of Terms.-In this Act, unless inconsistent with the context," Bank" or "banker" means and includes every person, firm, or company using ill itB
" "b anIeer, " " b a~I'
. t'lOll or t'tl"
d esc.up
.1 e. b a111c,.
nng, " a?c1 every person, fi rm, or company
recelvmg or acceptmg deposits of money subJect to Withdrawal by cheque,draft, or order
excepting savings-banks established under the provisions of the Savings-banles Act, 1908: '
" Bank-note" means any bill, draft, or note issued by any bank for payment of money. to
. bearer on demand, or which entitles or is intended to entitle the holder, wit.hout endorsement, or any further endorsement than may exist thereon at the time of issue, to the
payment of any sum of money on demand, whether the sum shall be so expressed or not:
" Demand liabilities" means and includes all liabilities payable within thirty days or subject
to less than thirty days' notice before payment:
" Reserve balance" means balances held by other banks in the bank:
" 'l'ime liabilities" means and includes all liabilities payable after thirty ~ays, or subject to
not less than thirty days' notice before payment.
appears desirable that provision should also be made for the following :(1) Penalties for forging or defacing the notes of the Reserve Bank;
(2) The repeal of the existing restrictions on the export of gold coin.
NOTE.-It
SCHEDULE A.
STATUTES OF RESERVE BANK OF NEW ZEALAND.
CHAPTER l.--NAME, SEAT, AND OBJEOT.
1. There shall be constituted, under the name of " The Reserve Bank of New Zealand "(hereinafter referred to as the Bank), a company limited by shares.
2. The .bank shall be registered and have it;:; head office in Wellington" New Zealand. The bank
is empowered to establish branches or agenCies
appoint agents anywhere in New Zealand, and may
open agencies or appoint agents abroad.
3. The primary duty of the bank shall be to ensure that the value of its notes remains stable. To
this end it must exercise control, within the limits of its statutes, over monetary circulation and
credit in New Zealand.
or
CHAPTER Il.--CAPITAL AND RESERVE.
4. The original capital of the bank shall be £500,000, in fully-paid shares of £5 each, all of which
shall be offered for public subscription in New Zealand.
5. The shares shall be registered and transferable in the books of the banle.
The bank shall be entitled, without assigning any reason, to decline to accept any person or
corporation as the transferee of a share.
. 6. Any premium obtained on any issue or sale of shares shall be added to the General Reserve Fund.
7. The share capital of the bank may be increased by the Board from time to time, subject to the
consent of a general meeting of shareholders and with the approval of the Treasury.
8. The General Reserve Fund (and Special Reserve Funds, if any) shall be built up out of the
annual net profits as provided for in Article 51.
.OHAPTER IlL-GENERAL MEETING.
9, Decisions of the general meeting of shareholders are binding upon all shareholders, including
those absent from, or disqualified hom voting at, a meeting, or dissentient from the decisions taken
thereat.
10. The ordinary general meeting shall be convened by the Board, and held regularly once in
every year not later than the month of July.
All questions to be discusserl at the ordinary general meeting will be placed on the agenda by the
Board.
Motions to be proposed by shareholders must. be communicated to the Board not later than
thirty days before the ordinary general meeting, accompanied by a statement of the arguments ill
support of them.
11. Extraordinary general meetings shall be held as often as may be required, and shall be
convened by the Board,
On the request in writing of duly qualified shareholders representing at least one-quarter of the
subscribed capital, the Board must call an extraordinary general meehng, which shall take place
within thirty days from the date of such request. Every such demand shall be accompanied by the
motions which are to be submitted to the meeting and by a statement of the arguments in support
of them.
12. Notices to attend a general meeting shall be forwarded to the shareholders by letter to the
address entered on the register, not later than twenty-one days before the meeting. The notice must
specify: (a) The day and hour of the meeting; (b) the place of the meeting; (c) the agenda.
In the case of the ordinary general meetmg the notice must. be accompanied by a copy of t.he
annual accounts and report, and copies of these documents shall also be available to shareholders at
all offices of the bank. The notice shall likewise be published in the Gazette, and in such newspapers
as may be selected by the Board, at least twenty-one days before the meeting.
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13. Any shareholder who is a Britlsh subject and normally resident in New Zeal,and shall bb
entitled to one vote at. a general meeting of shareholders .in respect. of every share of which he haR been
the registered proprietor for not less than six months immecliately preceding the date of t.he meeting.
but no one shareholder may exercise more than 1,000 votes in his own name and 1,000 as proxy.
.
No voting-rights shall attach to any shares in the ownership of the Treasury.
14. Every shareholder is entitled to transfer his right of voting at a general meeting to some other
shareholder by proxy, sul:>ject to the limitation of voting-power laid down in Article 13.
15. The general meeting 'shall deal with the following matters :(a) Approval of the annual accounts and report of the directors;
(b) Appropriations to the reserve and other funds;
(0) Declaration of annual dividends;
(d) Election or removal of members of tIle Board of Directors (Articles 23 and 30) al!d auditors
(Article 56), and the sanctioning of their fees and expenses;
(e) Proposals to amend these statutes: such proposals, except those for an increase of capital
(Article 7), will require parliamentary sanction.
16. At general meetings the chair shall be taken by the Governor of the bank, or, in his ahsence,
by his deputy.
The Chairman shall not vote unless equal votes have been cast, in which case he shall have the
deciding vote.
.
17. Except where otherwise provided, resolutions shall be adopted by a simple majority of votes
of the shareholders present or represented by proxy.
CHAPTER IV.-MANAGEMENT.
18. The general conduct of the business of the bank shall he entrusted to a Board of Directors
responsible to the general meeting, and consisting of a Governor, Deput.y Governor, and five other
members.
( a) Govern01' and Deputy Governor.
19. The Governor and Deputy Governor shall be elected by the general meeting for a period of
seven years, shall devote their whole time to the affairs of the bank, and shall receive 'such salaries
and allowances respectively as may be determined by the Board of Directors, provided that the Governor
and Deputy Governor shall not be remunerated by any form of commission or share in profits reckoned
on the earnings of the bank. The election of the Governor and Deputy Governor must receive the
approval of the Governor-General in Council.
.
The first Governor and Deputy Governor of the bank Rhall, however, be appointed for seven years
by the Governor-General in Council.
Both the Governor and the Deputy Governor shall be eligible for re-election,
20. The Governor and the Deputy Governor shall be persons of banking experience; they shall
not act as directors of any business nor engage in any business OIl their own account; nor shall they
hold any interest in any other bank.
.
The provisions of Article 24 shall apply to the Governor and Deputy GovernoT equally with the
other directors.
21. The Governor shall, on behalf of the Board of Directors, he in permanent control of the administration of the bank's assets and general business, t!J,king decisions in all cases not. specifically reserved
to the Board or to the general meeting of shareholders or governed by regulations which either of these
have issued.
22. The Governor may delegate such of hi!? functions as he . thinks fit to the Deputy Governor,
who, in any case, shall take the place of the Governor during the latter's absence for any reason.
If the Governor and Deputy Governor are both prevented from carrying out. their duties, the
Board of Direr-tors shall nominate one of its members to act ad interim as Governor.
(b) BOa1'd oj Di1'eotors.
23. The members of t.he Board, other than the Governor and Deputy Governor, shall be elected
for a period of five years by the shareholders at a general meeting. Two must be elected from persons
who are, or have been, actively engaged in primary industries and two from persons who are, or have
been, actively engaged in industrial or commercial pursuits, Not more than one of the Directors may
also be a director of any other bank.
The first Board of Directors shall, however, be appointed by the Governor-General in Council.
One member of the first Board of Directors, other than the Governor or Deputy Governor, shall ret.ire
at, the end of each of the first five years, the order of retirement being decided by ballot. Thereafter
the Directors shall retire annually in accordance wit.h their length of service. Retiring Directors shall
be eligible for re-election,
24. Only shareholders with voting-rights shall be eligible for election t.o the Board of Directors,
but the following, are disqualified from holding office as members of the Board :(a) Members of Parliament;
(b) Officials or employees of the State;
(0) DirectorR, officers, or employees of other banks, except as provided in Article 23,
25, If a casual vacancy occurs on the Board of Directors, t,he remaining members of the Board
shall appoint a subfltitute Director, who shall hold office until the next ordinary general meeting, which
shall appoint him or some other person to serve for tIle unexpired period of office of his predecessor.
'\
,1
9
D
B.-S.
26. The Governor, or, in his absence, the Deputy Governor, shall summon a meeting of the Board
of Directors as often as may be required, but not less frequently than once a month, and shall take
the chair at these meetings. The Governor shall also convene the Board of Directors when requested
to do so by three of its members.
27. Decisions of the Board of Directors shall he valid only when, in addition to t.he chairman, at
least three of the other Directors are present.
.
Decisions shall be taken by a simple majority of votes.
In the' case of an equality of votes, the chairman shall have a second or casting vote.
28. The Directors shall receive such fees and expenses as may be determined by the Board and
sanctioned at a general meeting.
29. The Board of Directors shall have power to deal with the following matters :(a) Rates of discount and interest:
(b) The general conditions, and limits of the various categories of authorized business:
(c) The internal regulations of the bank:
(d) T)le opening and closing of branches and agencies:
(0) The organizat.ion of a clearing-house:
(j) The approval of balance-sheets and profit and loss accounts for presentation to general
meetings:
(g) The purchase and sale of real property required for the business of the bank:
(h) The form, denomination, design, and material of bank-notes, which shall be submitted
to the Treasury for approval; also the manufacture, custody, issue, redemption,
retirement, and cancellation of bank-notes.
30. The Governor, Deputy Governor, or a Director shall be deemed to have vacated his office if(a) He becomes bankrupt or insolvent or applies to have the benefit of any Act for the relief
of bankrupt or insolvent debtors, or compounds with his creditors, ' 01' makes an assignment of his remuneration for their henefit; or
(b) He becomes permanently incapable of performing his duties.
(c) Execut·ive Oommittee.
3l. The Governor, the Deputy qovernor, and one Director shall constitute an 'Executive Committee, whose decisions shall be recorded in minutes. This committee is competent to take any decision
upon any question which falls within the competence of the Board of Directors, provided that the
decisions of the committee are submitted to the Board for confirmation at its next session. In cases
of urgency the committee is authorized to alter the rate of discount, The presence of all members of
the committee is necessary at meetings at which a decision to alter the rate of discount is taken.
32. The Executive Committee shall act as a Discount Committee, and deal with discounts and credit
limits within the general authority given by the Board, and such other matters as the Board of Directors
may decide.
CHAPTER V.-POWERS OF THE BANK .
D
( a) General Business.
33. The bank may(a) Make and i8sue bank-notes
(b) Buy and sell gold and silver coin or bullion:
(c) Accept money on deposit or current account without interest, except as provided in
Article 39 :
(d) Discount, rediscount, buy, and sell bIlls of exchange, promissory notes, and other paper
arising out of bonafide commercial transactions and bearing two or more good signatures
and maturing within 120 days of the date of acquisition; also agricultural bills maturing
within six months of the date of acquisition, provided that the latter type of bills does
not exceed 40 per cent. of the internal bills held: .
(e) Subject to the provision of Article 34 (i), discount, rediscount, buy, and sell Treasury bills
or bills of any public body maturing within three months:
(j) Grant advances for fixed periods not exceeding three months against(1) Gold coin and bullion, or the documents relating to the shipment thereof;
(2) New Zealand Government and local-body securities and such marketable
securities as have a ready Rale on the New Zealand Stock Exchange as
may be approved for that purpose from time to time by the Board;
(3) Such notes and bills as are specified in sections (d) and (e) of this article;
(4) One-name .promissory notes of any bank carrying on business in New Zealand,
with a maturity not exceeding fifteen days, and covered by any collateral
security which the bank is empowered to discount or accept as security
for a loan or advance:
(g) Buy and sell New Zealand Government or British Government securities for its own
account: Provided that the amount held of such securIties of more than three months'
currency shall not exceed the paid-up capital and reserves:
(h) Buy and sell foreign currencies:
(i) Issue and manage, but not underwrite, New Zealand Government loans and loans of other '
public hodies in New Zealand:
(j) Organize a clearing system:
(k) Act as correspondent or agent for any bank outside New Zealand:
(l) Do any banking business consequential on and in keeping with the provisions of these
statutes.
2-B.3.
B.-3.
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10
34. The bank may not(a) Issue notes of a denomination of less than lOs.
(b) Engage in trade or otherwise h~,ve a direct interest in any commercial, industrial, or other
similar undertaking:
(c) Purchase its own shares . or the shares of any other bank, or grant loans on the security
thereof, excepting those of the Bank for International Settlements:
((l) Make unsecured loans or advances:
(e) Purchase or make advances on real estate, except as provided in Article 35 or as may be
required to enable the bank to conduct its business:
(f) Pay interest on money placed on deposit or current account with the bank, except that
interest may be paid to the New Zealand Government on foreign balances as provided
for in Article 39. In particular, the bank shall pay no interest on the deposits which
other banks are required to keep with it, amounting to 7 per cent. of the demand
liabilities and 3 per cent. of the time liabilities of those banks:
(g) Allow the renewal of maturing bills of exchange purchased or .discounted .by, or pledged
to, the bank, save, in except.ional circumstances and after a resolution passed by the
Board of Directors, in which case one renewal may be permitted:
(It) Draw or accept bills payable otherwise than on demand:
(i) Grant accommodat.ion to the State, State undertakings, or public authorities, directly or
indirectly, by way of discounts, loans, or advances exceeding three months' revenue
of such authorities.
35. In the event of any claim of the bank being endangered, the bank may secure itself on real
property of the debtor and may acquire such property, provided that it is resold at the first opportune
moment.
36. The bank shall at all times make public the minimum rate at which it is prepared to discount
or rediscount bills.
( b) Relations with the State.
37. The bank shall manage, without remuneration, the receipts and disbursements of the State.
All State receipts shall be paid into the bank and disbursed under competent authority in writing
directed to the bank. For this purpose the bank shall open current accounts for the Treasury.
38. All accounts of the State shall be kept at the bank, including the accounts of the Post Office
Savings-bank and all other State undertakings.
39. No interest ehall be paid by the bank on such accounts, except that the bank may pay on
Government funds held abroad interest at a rate lower by not less than i per cent. per annum than
the average rate earned by the bank on all short-term funds held abroad.
40. The Government shall entrust the bank with all their money, remittance, exchangr, and
banking transactions in New Zealand and elsewhere.
41. The bank shall, if so requested by the Treasury, manage the State debt and act as the agent
of the Treasury in paying all dividends, interest, allocations to sinking funds, or repayments of maturing
securities.
42. The bank shall be exempt from all State taxes except land and income tax and the special tax
provided for in Article 49 of these statutes.
43. During the period of the privilege granted to the bank under Article 44 the New Zealand
Government undertakes not to issue or reissue )noney of any kind whatever, other than subsidiary
coins of denominations not higher than 5s., and these only to the bank and at its request.
(c) Note-issue.
44. The bank shall have the sole right. of Issuing notes in New Zealand for a period of twenty-five
years from the date prescribed by the law of [Date]; but the privilege may be revoked at any time if
the bank fails to ellsure that the value of its notes remains stable.
45. A tender of a note of the bank expressed to be payable on demand shall be a legal tender to
the amount expressed in such note, so long as the bank shall continue to pay its notes in the
manner prescribed in Article 46.
46. On presentation at the Head Office of the bank in Wellington the bank shall be obliged to .
give in exchange for its notes sterling for immediate delivery in London.
The bank shall also be obliged to deliver its notes on demand in Wellington in exchange for sterling
for immediate delivery in London tendered to it.
The obligation of the bank to convert its not.es applies to any amount not less than £5,000.
. When, the bank gives sterling in exchange for its notes, or vice versa, the rate at which such exchange
is effected shall not at ailY time vary from parity with sterling by more than 30s. either way.
The provisions of this article' shall not come into operat.ion until a date to be fixed, at the request
of the bank, by Order in COlmcil and published in the Gazette.
47. The bank shall mainta.in a minimum reserve of not less than 30 per cent. of the amount of
its notes in circulat.ion a.nd other demand liabilities .
. 48. The t.erm " reserve." in the preceding Article shall include only(a) Gold coin and bullion in the unrestricted ownership of the bank:
(b) Deposits at the Bank of England:
(c) British Treasury bills maturing within three months:
(d) Bills of exchange payable in London bearing two good signatures, maturing within three
months:
(e) Net f.oreign gold exchange in the unrestricted ownership of the bank, provided that it
be on a country the currency of which by law and in practice is convertible on demand
at a fixed price into exportable gold.
II
B.-3.
For the purpose of this Article, and subject always to the preceding paragraph (e), the term" net
foreign gold exchange " shall be taken to mean(1) Foreign balances standing to the credit of the bank at the Central Bank of the country
of origin of the currency in question:
(2) Bills of exchange payable in a foreign gold currency (as defined above) maturing within
three months and bearing at least two good signatures:
Less any liabilities in foreign exchange.
4~. At the request of the bank, the Government shall authorize the suspension for a period not
exceeding thirty days, and from time to time the renewal of such suspension for periods not exceeding
fifteen days, of the reserve requirements specified in Article 47: Provided that upon the amounts
by which the reserve for notes and demand liabilities of the pank falls below the requirements of
Article 47 the bank shall pay a graduated tax to the Treasury at the following rates-viz., 1 percent:
per annum on the deficiency when the reserve against notes and sight liabilities is less than 30 per cent.
but not less than 25 per cent., and, in addition, Ii per cent. per annum upon each further 2! per cent.
or part thereof by which the reserve falls below 25 per cent.
50. Whenever the reserve falls below the 30 per cent. referred to in Article 47 the bank shall
immediately add to its minimum current discount rate a percentage at least equal to the percentage
of tax payable in accordance with the preceding Article.
CHAPTER VI.-ACCOUNTS, PROFITS, AUDITS, AND RETURNS.
)
51. After making provision for bad and doubtful debts, depreciation in assets, superannuation
of staff, and all such items as are usually provided for by bankers, and after payment out of net
profitl'l of a cumulative dividend of 6 pcr cent. per annum on the paid-up capital, one-half of the
surplus shall be allocated to the General Reserve Fund so long as such Fund is less than the paid-up
capital of the bank, and the remaining one-half shall be paid to the Government. Thereafter
one-tenth of the surplus shall be allocated to the General Reserve Fund until it equals twice the
paid-up capital. The remaining nine-tenths shall be paid to the Government. Thereafter the entire
surplus shall be paid to the Treasury.
52. The financial year of the bank ends on the 31st March.
the Treasury a statement of its assets and liabilities
53. The bank shall make up and transmit
as at the close of business on every Thursday in the month. This statement shall be arranged in the
form set out in the blank schedule attached to these statutes, and the Treasury shall cause a copy of
such statement to be published in the next succeeding issue of t,he Gazette.
54. The bank shall also, within three months from the close of its financial year, transmit to the
Trea.sury a copy of its annual accounts, signed by the Governor, Deputy Governor, and Chief
Accountant of the bank, and certified by the auditors; and the Treasury shall cause a copy to be
laid before Parliament and to be published in the Gazette.
55. The bank shall also, within sixty days after the close of its financial year, transmit to the
Treasury a list giving the names and addresses of stockholders and the amount of stock held by each.
56. The hank shall appoint a qualified firm of independent auditors to audit the .accounts of the
bank. The first auditor shall be appointed by the Treasury, and shall hold office until the first
ordinary general meeting. Thereafter the auditor shall be appointed annually by the shareholders
at the General meeting.
No Director or other officer of the hank shall during his tenure of office be eligible for appointment
as an auditor.
to
D
CHAPTER VII.-LIQUIDATION.
57. Subject to the provisions of Article 59, the bank shall go into compulsory liquidation if(1) The note-issue privilege is revoked under the provisions of Article 44 ;
(2) The bank has suspended payment of any of its liabilities without being able to give as
.
a cause jorce majeure;
(3) The banle has lost more than half of its paid-up capital.
58. Subject to the provisions of Article 59, the bank may be wound up on the resolution of a
two-thirds majority of a specially convened general meeting at which at least half of the subscribed
capital is represented.
59. Confirmation by an Act of Parliament is required if the bank is liquidated or wound up before
the expiration of its note-issue privilege.
60. In the event of liquidation or winding-up, the assets and liabilities of the bank shall be
realized by three l)ersons, one of whom shall be appointed by the Government and one by the Board of
Directors; the third shall be a person agreed upon by the Government and the Board of Directors,
or, failing agreement, appointed by the Governor-General in Council.
61. If as the result of such realization the assets of the hank exceed its liabilities (other than any
liability to shareholders in respect of their holdings), any excess assets shall be divided, as toone-third
to the shareholders and, as to two-thirds, to the Government.
B.-3.
12
RESERVE BANK OF NEW ZEALAND.
1.
2.
3.
4.
5.
If
I
I
6.
7.
8.
Assets.
Gold coin or bullion
Foreign exchange
Subsidiary coin
Discounts(a) Commercial and agricultural
bills
(b) Treasury bills, &c ...
Advances(a) To the State or State ulldertakings
(b) To other public authorities
(c) Other
Investments
Bank buildings
Other assets
£
Liabilities.
9. Paid-up capital. .
10. General R eserve Fund
11. Banle notes
12. Demand liabilities(a) State
(b) Banks
(c) Other
II 13. Time
deposits
I
14. Foreign exchange liabilities
' j 15. Other liabilities
I
..£
Total ..
.. £
Total
Proportion of Reserve to Notes and other Demand Liabilities.
£
Gold ..
Foreign exchange (No.2, less No. 14)
£
Reserve (a) ..
Proportion of (a) to notes and demand liabilities (11 and 12)
=
%
Approximate Oost of PapeT.-Preparat ion, not given; printing (750 copies), £11.
By Authority: W. A. G.
Price 6d.]
SKINNER,
£
Government Printer, Wellingt.on.-1931.